Question

What payment is required at the beginning of each month for 5 years to repay a loan of $25 000.00 at 6.0% compounded monthly?

Answer 1

$483.14

Explanation:

To find the monthly payment required to repay a loan of $25,000.00 over a period of 5 years at a monthly interest rate of 6.0%, we can use the formula for the present value of an annuity:

PMT = PV*(r*(1 + r)^n) / ((1 + r)^n - 1)

where PMT is the monthly payment, PV is the present value of the loan, r is the monthly interest rate, and n is the total number of payments.

First, we need to convert the annual interest rate of 6.0% to a monthly interest rate by dividing it by 12:

r = 6.0%/12 = 0.005

Next, we need to calculate the total number of payments, which is equal to the number of years times the number of payments per year:

n = 5 years * 12 months per year = 60 months

Then, we can substitute the values into the formula:

PMT = 25000*(0.005*(1 + 0.005)^60) / ((1 + 0.005)^60 - 1)

Simplifying the expression:

PMT = $483.14